IBM, CLS bring blockchain marketplace to fintech

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Dive Brief:

On Monday, IBM announced a distributed ledger technology (DLT) proof of concept with CLS, a foreign exchange settlement services provider, that will function as "a blockchain marketplace for the financial services industry." Financial institutions will be able to host services, including customer processes, market data and collateral management, on an enterprise network.

By providing a common secure network, IBM and CLS hope the LedgerConnect POC will overcome the costs and resources spent by institutions to create and deploy individual DLT infrastructure, according to the announcement. DLT technology can also mitigate reconciliation costs for businesses with siloed data and functionally overlapping systems.

Barclays and Citi are among the nine financial institutions that have signed on to the POC, which offers services from vendors including IBM.

Dive Insight:

The blockchain market is growing at an expected 80% CAGR, set to reach $8.1 billion in three years. The market is expected to coalesce around project-oriented services, outsourced services and support and training services, according to IDC.

The financial services sector is leading blockchain experimentation and adoption. But for every one blockchainPOC that holds promise for the enterprise, about two more do not have a foundation strong enough for future development.

Single networks like LedgerConnect offer several advantages for businesses. Blockchain is still a nascent technology with a small talent pool that can develop new projects and infrastructures. With so many businesses trying to get in on the tech, this can drive up salaries for experienced developers and make talent acquisition difficult for businesses with fewer resources.

Common networks and "blockchain as a service" offerings can open up the technology for businesses without the resources to build DLT systems from the ground up. It also reduces the risk for companies looking to test out a POC without necessarily reconfiguring their infrastructure around the new network.

However, blockchain networks still pose many risks. Interoperability between networks will be crucial to the technology's long-term success, but with limited long-term solutions in the market right now, vendor lock-in and a lack of understanding could cause speed bumps for a business.

To promote interoperability, manage risk and establish standards, some experts are calling for regulatory sandboxes so organizations can test early implementations of DLT and blockchain without fear of reprisal from regulators.